The Fiscal Cliff: The Choice is Not "Recession or No Recession" but "Recession Now or Recession Later"! Here's Why

The warnings that the fiscal cliff will cause a recession are delivered as if the government can decide whether or not we have a recession. In fact, the government does not have that power, or we would never have recessions. At the most, the government can influence when, not if, we have a recession. We will most likely undergo a recession when we wean ourselves off the unsustainable deficit spending of the last four years. The choice is not recession or no recession. The choice is recession now or recession later. [Let me explain.] Words: 542

So says Jeffrey Dorfman in edited excerpts from his original article* as posted on Real Clear Markets (www.realclearmarkets.com) entitled The Fiscal Cliff? Let’s Rush Off Of It.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

Dorfman goes on to say, in part:

The reality that many political and opinion leaders seem unable to grasp is that the government cannot create jobs or economic growth. All the government can do is to borrow jobs or growth from the future. Think about it: if the government could create growth, jobs, or wealth, why do we still have unemployment and poverty? Government’s effect on the economy is temporary at best; eventually the price must be paid.

If you believe that government deficit spending is good for the economy, then you must admit that when the government pays back the money it will be bad for the economy. Paying the debt means some government spending is going toward something that does not help the economy.

Since the government cannot run a trillion dollar deficit forever…every job created by deficit spending now is a job that the government is costing the economy later, when it must instead use revenues to make debt payments. Even paying just the interest on the debt means that a fraction of the jobs created now are lost forever based on the interest rate on the government bonds. [As such,] twenty jobs gained this year with deficit spending may be one job lost forever once the deficit is normalized.

I vote for massive spending cuts to bring the deficit back to $300 billion or less within two years. I can accept some tax increases to go with the spending cuts as long as they are simultaneous. If taxes go up now, spending should be cut now; none of these out-year cuts years in the future that are not legally binding. Comparing today’s spending to that under Clinton shows it not just possible, but fairly easy to regain spending sanity.

If we spend today’s equivalent to Clinton’s last budget, the problem would be solved. If that gives us a recession, at least I know more of today’s children will have jobs in the future thanks to our short-term sacrifice today.

Conclusion

If people think this through logically, they will see the choice is not whether to have a recession, but when. The politicians created false prosperity with these unprecedented deficits, but the mirage is not real. We must choose either to be poorer now in order to be richer later or to be richer now at the cost of being poorer later.

*http://www.realclearmarkets.com/articles/2012/11/26/the_fiscal_cliff_lets_rush_off_of_it_100007.html(Jeffrey Dorfman is a professor of economics at the University of Georgia, and the author of the e-book, Ending the Era of the Free Lunch.)

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

<img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/06/Debt-130×90-90×65.jpg” alt=”Debt-130×90″ title=”Debt-130×90″ />Many articles are being written these days that more or less scope the dire financial circumstances the U.S. is in. That being said, I had not been able to find one “analyst” – even one – who had the guts to outline the probable outcome and general hopelessness of the situation and to offer any meaningful prescription for investors to survive this coming catastrophe – until now. Words: 710

<img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/03/10623945-the-word-debt-in-the-american-flag-colors-americans-in-debt-90×65.jpg” alt=”10623945-the-word-debt-in-the-american-flag-colors-americans-in-debt” title=”10623945-the-word-debt-in-the-american-flag-colors-americans-in-debt” />It’s the shrunken tax base, not lower tax rates, which is responsible for today’s revenue shortfall. A healthier economy and faster jobs growth would do much more to close the deficit than any amount of higher tax rates on the rich. Raising tax rates might weaken the economy further, and that would make it much more difficult to generate higher tax revenues. [The truth of the matter is that] nobody’s taxes need to be raised, and nobody’s spending needs to be cut—the U.S. economy is already on a glide path to the restoration of fiscal sanity. Washington: are you listening? Words: 1190

<img title=”investing4″ src=”http://www.munknee.com/wp-content/uploads/2011/08/investing4-90×65.jpg” alt=”investing4″ width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/08/investing4-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2011/08/investing4-90×65.jpg” alt=”investing4″ title=”investing4″ />Screams about how these top-bracket income tax and capital-gains tax increases will ruin the economy by hammering spending and eliminating the incentive to work can be seen for what they are – the whining of people who don’t want their taxes to go up [BUT, when it comes to the possible increase in the top tax on dividends they have a point – a BIG point – a VERY big point. Let me explain.] Words: 450

<img title=”crisis” src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” alt=”crisis” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” data-lazy-type=”image” /><img title=”crisis” src=”http://www.munknee.com/wp-content/plugins/bj-lazy-load/img/placeholder.gif” data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” alt=”crisis” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” data-lazy-type=”image” /><noscript><img title=”crisis” src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” alt=”crisis” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” data-lazy-type=”image” /><img title=”crisis” src=”http://www.munknee.com/wp-content/plugins/bj-lazy-load/img/placeholder.gif” data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” alt=”crisis” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” data-lazy-type=”image” /><noscript><img title=”crisis” src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” alt=”crisis” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2011/07/crisis-90×65.jpg” alt=”crisis” title=”crisis” />The corrosive nature of politics and government has destroyed the economy and the moral fiber of citizens. These issues are not insurmountable, but they are very close to being so. Their ramifications are potentially existential in nature: the average length of life, the very time span or cycle of a nation has been proven in history to be approximately 250 years. Since the USA was born in 1776 this says we have about 14 years of life remaining for America. The way things are going we don’t doubt it. [Let me explain.] Words: 768

<img title=”cliff_dive” src=”http://www.munknee.com/wp-content/uploads/2012/11/cliff_dive-90×65.jpg” alt=”cliff_dive” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/11/cliff_dive-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/11/cliff_dive-90×65.jpg” alt=”cliff_dive” title=”cliff_dive” />If Congress addresses the issue by maintaining the current tax and spending policies we will get more of the same economy we have experienced for the past three years (all else being equal). [That being said,] what if Congress goes over the fiscal cliff hit? This blog post is designed to asses the impact. Words: 1362

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